June 21, 2010

 

FrieslandCampina unveils plan to revamp operations

FrieslandCampina promised its farmers a brighter outlook for milk payments as the Dutch dairy co-operative unveiled plans for global expansion, and focusing on greater-processed products.

 

The company said it would, in the face of the globalisation of dairy markets, expand both in Europe and abroad, tapping into faster growth expected in Asian economies.

 

The co-operative will also expand in processed products such as ingredients, milk drinks and baby foods, which promise greater margins than selling milk.

 

"This will mean a shift from sales of commodities such as milk powder and whey powder towards sales of more specialised products," FrieslandCampina said.

 

The revamp plan, named route2020, would increase sales of differentiated products by 5% a year by volume, leading to a "gradual improvement in FrieslandCampina's results".

 

"This will be reflected in the performance price paid for all milk supplied by member farmers," the co-operative said.

 

The group added that it expected to be able to pay for the costs of the plan from profits, while saying that takeovers may be needed to complete the implementation.

 

"FrieslandCampina's strategy includes the possibility of acquisitions, while there are no plans at this stage to dispose of activities," the company said.

 

The strategy follows a well-worn path by dairy groups, such as France's Danone and the UK's Dairy Crest, into expanding in consumer products offering the potential for higher profits – but which can also be a fiercely competitive market.

 

Dairy Crest's recent successes in promoting brands such as Country Life butter and Cathedral cheddar have come at the expense of huge advertising budgets.

 

FrieslandCampina's ambitions also imply a further pressure for consolidation in milk markets, and come hours after Danone unveiled a tie-up with Unimilk which will be Russia's biggest dairy group.

 

The company was itself formed last year from a tie-up of the Netherlands' top two milk producers, Friesland Foods and Campina.

 

"Now, 18 months after the merger, we can consider the integration a success," Cees't Hart, the FrieslandCampina chief executive, said.